Originations

After filing for Chapter 11 in Jan. 2008, Homebuilder TOUSA, Inc. is now suspending efforts to generate new build-to-order sales. The company said it is focused on completing and closing homes currently under construction, selling its remaining inventory of spec homes, and monetizing its land assets over time. TOUSA will continue to market and solicit offers for its assets during this process. The company is in discussions with various parties regarding a sale of its financial services businesses Universal Land Title, Inc., Preferred Home Mortgage Company, and Alliance Insurance Information Services. It is also in discussions regarding a sale of its homebuilding operations in Texas, which serve the Houston, San Antonio, and Austin markets under the Newmark and Trophy brands.

The Mortgage Bankers Association on Monday laid off about 16% of its workforce — about 20 full-timers — including four of its vice presidents.A spokeswoman for the trade group said the layoffs "were across the board" affecting all of its departments, including communications, government, marketing and research. Since last year MBA has lost about 30% of its staff. After the cutbacks the organization will employ about 110. Recently, mortgage technology vendors said MBA would eliminate its annual technology trade show to save money, but the spokeswoman shot down such talk in part. Sources say it is unlikely the MBA will hold a standalone technology show and may fold it into other shows or hold smaller regional conferences. MBA's membership ranks have been hurt by the worst housing downturn since the Great Depression, resulting in hundreds of non-banks and depositories closing their doors over the past 18 months.

Market reaction to the government's public-private programs for troubled MBS and commercial loans has put upward pressure on the benchmark 10-year Treasury yield as of midday Tuesday, partially reversing the steep drop it saw less than a week ago.The 10-year yield at noon Tuesday was at about 2.7%, up from a recent drop to a low near 2.5% from a point close to 3.0%. That decline had marked the largest one-day drop in the 10-year yield since Oct. 20, 1987, according to Freddie Mac chief economist Frank Nothaft. A Federal Reserve plan to buy longer-dated Treasuries and purchase more agency mortgage-backed and debt securities had triggered the earlier decline in the benchmark yield.

Triad Guaranty Inc., the parent of the nation's smallest mortgage insurer, said in a new public filing that it may not continue as a going concern.Its MI affiliate, Triad Guaranty Insurance Corp., has been in run-off since last July, and as a result, the company has been operating under a regulatory corrective order with the Illinois Department of Financial and Professional Regulation, Division of Insurance. "This uncertainty is based on the ability of Triad to comply with the run-off provisions of the corrective order, the company's recurring losses from operations and a deficit in assets at Dec. 31, 2008," it says in a new SEC filing. Triad has a deficit in assets of $136.7 million as of Dec. 31, 2008. It expects to report a deficiency in policyholders' surplus starting with the first quarter 2009 and running through 2011. "Management is currently working with the Division to structure a revised corrective plan in a manner that is expected to provide for a solvent run-off. If the revised corrective plan is unsuccessful, the Division may be forced to place (the mortgage insurance subsidiary) into receivership which would effectively compel the parent, Triad Guaranty Inc., to declare bankruptcy," it says.

Pacific Mercantile Bancorp, Costa Mesa, Calif., said it is re-entering the mortgage lending business — both in the wholesale and retail channels.In mid-2005 the bank exited the wholesale channel entirely, and severely scaled back retail residential. Company chief executive Raymond Dellerba said he expects an increase in home purchase volume and a correspondent increase in demand for residential mortgages as prices for homes begin to stabilize and the economic recovery begins. "Additionally, we believe that the credit quality of prospective borrowers will be much improved, because credit underwriting standards are being tightened and subprime and other high-risk mortgage loan products have been discontinued," he said. "As a result, we are planning to re-enter the wholesale and retail mortgage loan origination business, which we believe provides us with an opportunity to increase our revenues and profitability." He noted the previous wholesale and retail mortgage loan operations enabled the bank to increase revenues and improve profitability after the dotcom bust in 2000 and again after the attacks of Sept. 11, 2001.

Jim Clapp, senior vice president in charge of warehouse lending at Guaranty Financial Group, is leaving the bank, industry sources told National Mortgage News.Mr. Clapp declined to comment on the matter. He is expected to take a job with a mortgage banking company based in Texas. The Austin-based GFG is winding down its warehouse lending business but will continue to fund lines that are not set for expiration until 2010. GFG, whose shares trade for less than $1, is trying to shrink its balance sheet in an effort to preserve capital. In a recent filing with the Securities and Exchange Commission, the depository said it would not file its annual report and 10-K on time. The thrift has been hit by large markdowns on its MBS and commercial real estate portfolios.

Even though the mortgage insurance business is in the tank, the former head of the Radian Group is in the process of forming a new MI firm that also will act as a reinsurer, industry executives confirmed to National Mortgage News.The company, whose CEO and co-founder is former Radian chief Mark Casale, is called Essent U.S. Holdings and is based in suburban Philadelphia. Mr. Casale could not be reached for comment. One MI source said Mr. Casale "has recruited a number of people from Radian, PMI and other MIs." He noted that Essent is not yet rated and is waiting on state approvals to write insurance. (See next Monday's NMN for the full story.)

Residential lenders could originate nearly $2.8 trillion in single-family mortgages this year — a stunning turnaround from last year when fundings totaled about $1.6 trillion, according to a new estimate made by the Mortgage Bankers Association.If MBA's prediction comes true, it would make 2009 the fourth best year ever for fundings. (The $1.6 trillion figure is courtesy of National Mortgage News' Quarterly Data Report.) It also would help turn around an industry that is coming off its worst year since 2000 and has seen hundreds of non-bank and depository funders fail. MBA estimates that refinancings could hit $1.96 trillion this year, a 150% spike from 2008. The new bullish estimate comes in the wake of recent aggressive efforts by the Federal Reserve to buy GSE-backed mortgage securities in an effort to drive rates dramatically lower. Mortgage rates could hit "lows not seen since the early 1950s and late 1940s," MBA chief economist Jay Brinkman said. Even with low mortgage rates, it is unlikely to stimulate home sales "until we see some stabilization of employment," the MBA economist said. He estimates purchase mortgage originations will total $851 billion this year, down slightly from 2008.

Federal Deposit Insurance Corp. officials are ready to begin discussions with banks that want to sell pools of troubled real estate loans under its new "Legacy Assets" program, but it could be three or more months before the agency is ready to conduct the first competitive sealed bid auctions. First FDIC intends to solicit public comments on the new program, which is designed to cleanse banks of high-risk residential mortgages and commercial real estate loans. Although the comment period will be very short, FDIC officials want to "nail down" the structure before they begin marketing the program to private investors who will be asked to take a 50% equity position in the loan pools as part of a public-private investment fund. FDIC also has to provide private investors time for due diligence to evaluate the assets before they submit bids. FDIC chairman Sheila Bair estimates that the Legacy Asset program could remove $500 billion in high-risk mortgages from the banking system if private investors put up $50 billion in capital. There are "huge challenges of implementing a program of this magnitude quickly," Ms. Bair said. "We intend to move forward with this program in a methodical and a transparent fashion."

The Mortgage Bankers Association on Monday laid off about 16% of its workforce - about 20 full-timers - including four of its vice presidents. A spokeswoman for the trade group said the layoffs "were across the board" affecting all of its departments, including communications, government, marketing and research. Since last year MBA has lost about 30% of its staff. After the cutbacks the organization will employ about 110. Recently, mortgage technology vendors said MBA would eliminate its annual technology trade show to save money, but the spokeswoman shot down such talk in part. It is unlikely the MBA will hold a standalone technology show, but rather fold technology into its other shows or do smaller regional technology shows. Its membership ranks have been hurt by the worst housing downturn since the Great Depression, resulting in hundreds of non-banks and depositories closing their doors over the past 18 months. The trade group has been criticized by members and past employees for two large, somewhat recent blunders: building a new $100 million headquarters in Washington and then struggling to lease out its empty floors. It also merged with a subprime lending trade group, most of whose lending members have failed. Discussing the office building, one former MBA executive said, "They basically traded paying the rent for bodies." The executive, requesting anonymity, said the staff cuts "will impact a lot of long-term projects they have."

Sales of single-family existing homes rose 4.4% in February from the previous month and sales may be stabilizing as the spring selling season begins. The National Association of Realtors reported that sales of existing SF homes rose from a seasonally adjusted annual rate of 4.05 million in January to 4.23 million in February. The median price of a home sold in February was $164,600, up $400 from January. However, the median house price is down 15% from a year ago. NAR chief economist Lawrence Yun noted that foreclosures and short sales make up 40% to 45% of sales. "Our analysis shows that distressed homes typically are selling for 20% less than the normal market price, and this naturally is drawing down the overall median price." Meanwhile, sales of condominiums and co-ops jumped 11.4% in February, compared to the previous month.

A survey conducted for Move Inc., Los Angeles, found that 23% of adults plan to purchase a home in the next five years, and more than half of them (53.5%) are first time homebuyers. Despite today's challenging market conditions, 18.1% of adults plan to buy a home this year in order to take advantage of the $8,000 tax credit recently passed by Congress in the administration's economic stimulus package. Another finding was that 18.9% of respondents plan to take advantage of the Obama administration's foreclosure prevention plan. Just over half of the respondents, 52%, said they are concerned they or someone they know will face foreclosure in the next six to 12 months. In the past 12 months, 21% of respondents with a mortgage contacted a lender to restructure their loan. Half (10.6%) of those homeowners that contacted their lender experienced success while 5% still await an answer. Nearly three-quarters (72%) of adults reduced spending in the past year in order to make monthly mortgage or rent payments, mostly by cutting discretionary spending such as vacations, entertainment and eating out (75%), personal items such as clothing, personal care and personal luxuries (72%) and energy costs such as gasoline and utilities (71.6%). "It's not all doom and gloom. We found Americans are optimistic about homeownership despite concerns," said Move Inc., chief executive Steve Berkowitz. "They're doing everything they can, from reducing discretionary spending to pay their mortgages, to planning to take advantage of the administration's new program to stop foreclosures. They're also working with lenders to modify loans. Even more impactful are numbers that show interest in home ownership is strong as nearly a quarter of all adults plan to buy a home in the next five years."

Ending retention bonuses at Fannie Mae and Freddie Mac as demanded by a powerful House Democrat would be "extremely detrimental" to the companies' and government's efforts to stabilize the housing finance system, according to Federal Housing Finance Agency director James Lockhart. "I believe FHFA would be violating its duties as conservator to end the retention plans and allow Fannie Mae and Freddie Mac to be hollowed out," the GSE regulator said. He noted in a letter to House Financial Services Committee chairman Barney Frank, D-Mass., that Fannie and Freddie employees are working longer hours for less compensation these days. And there is a "great risk" key employees will walk away if incentives are terminated. "If we don't provide existing employees incentives to stay, we will have a serious problem," Mr. Lockhart said. FHFA is preparing detailed information on the retention bonus plans for the committee chairman.

The National Credit Union Administration seized control of the nation's two largest corporate credit unions on Friday due to growing losses on their private label mortgage-backed securities. NCUA placed into conservatorship Western Corporate FCU, San Dimas, Calif. which provides services to 1,022 regular credit unions, and U.S. Central FCU, Lenexa, Kan., which serves as a banker to both WesCorp and 25 other corporate credit unions. Friday's action came just hours after U.S. Central released financial figures for February showing that unrealized losses on its securities rose by $1.2 billion, to $10.5 billion, with almost all of the new losses accruing on private-label mortgage-backed securities. The unprecedented government takeover came after NCUA received an independent review of the investments in U.S. Central, WesCorp. and the 25 other corporates conducted by Pimco Investors. Pimco found that the corporates' current holdings could result in losses of more than $16 billion, which would wipe out the capital of every corporate CU. The Pimco report runs 4,500 pages. According to The Credit Union Journal, regulators are discussing a plan to combine the distressed corporate investments into a single "bad bank," while trying to rescue the remnants of the corporate credit union system, which provides critical investment and payment system services to the nation's 8,000 regular credit unions. U.S. Central holds $34 billion in credit union funds and WesCorp $24 billion.

The rapid growth in FHA originations during 2008 has many concerned the federal mortgage insurance program is headed for trouble, but so far agency officials say they have not seen deterioration in loan performance, even when it comes to borrowers missing their first or second payments. "We have not seen any increase in early payment defaults," said Meg Burns, director of Federal Housing Administration single-family program development. FHA data and analysis show that only 0.6% of the over one million FHA loans originated in the first nine months of 2008 experienced first or second payment defaults, down from 0.8% in the same period in 2007. In addition, the default rate on FHA loans where borrowers miss three of the first six payment months has declined slightly. Early defaults generally are caused by income, martial or illness problems and they don't necessarily lead to foreclosures or claims on the FHA insurance fund. "There really is no correlation there," Ms. Burns said.

Simon Property Group Inc., Indianapolis, has priced a public offering of 15,000,000 shares of common stock at $31.50 per share. Deutsche Bank Securities Inc., Goldman, Sachs & Co. and UBS Investment Bank acted as joint book-running managers of the offering. The company has granted the underwriters a 30-day option to purchase 2,250,000 additional shares of common stock to cover over-allotments, if any. Concurrently, the Simon REIT also is offering approximately $500 million principal amount of senior notes due 2019. The completion of either offering is not conditioned on the success of the other. Goldman, Sachs & Co., J.P. Morgan and Banc of America Securities LLC are serving as joint book-running managers of the senior note offering. Simon will contribute the net proceeds of the offering to its majority-owned operating partnership subsidiary, Simon Property Group L.P., which will use the amount contributed to partially repay the outstanding balance of its $3.5 billion unsecured credit facility and for general corporate purposes.

Leib Pinter, a former executive of Olympia Mortgage Corp., has been sentenced to 97 months in prison for orchestrating a refinancing scheme to defraud Fannie Mae.Pinter also was ordered to pay more than $43 million in restitution to victims of the scheme. According to Benton J. Campbell, U.S. attorney for the Eastern District of New York, Pinter pleaded guilty to a wire fraud conspiracy on Sept. 11, 2008. Olympia, formerly headquartered in Brooklyn, N.Y., originated and serviced mortgage loans owned by Fannie. When Olympia refinanced a Fannie Mae mortgage loan, Fannie Mae typically wire transferred the money to an Olympia bank account. Olympia was then required to pay off the underlying mortgage loan by remitting the outstanding balance to Fannie Mae. Instead, Pinter misappropriated these proceeds for the benefit of Olympia. When the fraudulent scheme was revealed, Fannie held nearly $44 million in unpaid principal in refinanced mortgage loans.

The Department of Housing and Urban Development has completed the process of allocating $4 billion to states and communities for the purchase and renovation of foreclosed properties. Another $2 billion in neighborhood stabilization funds will available soon."These funds will be used to buy up and rehabilitate vacant foreclosed homes and resell those homes with affordable mortgages," President Barack Obama said. On Friday, HUD said it awarded the last $731 million of the $4 billion in funds that Congress approved last July as part of the Housing and Economy Recovery Act. These funds were allocated by formula to states and local communities hardest hit by the housing crisis. HUD is working to execute the grants to the 309 state, city and county recipients by the end of this month so the funds can be disbursed in April. The massive economic stimulus bill Congress passed in February provides another $2 billion in neighborhood stabilization funds. These funds will be awarded through a competitive process. HUD is expected to solicit proposals by May 3.

Fitch Ratings has cut the insurer financial strength ratings at MGIC Investment Corp. and The PMI Group to 'BBB' and 'BB,' respectively. For Milwaukee-based MGIC, the cut "reflects the loss expectations and capital constraints facing MGIC as an independent mortgage insurance company," Fitch said. "In addition to limited capital markets access, MGIC has few remaining assets that could be monetized to increase its capital resources (as the company did in 2008 with the sale of its interest in Sherman Financial LLC) and will largely have to rely on current capital resources to satisfy ongoing MI claims." Fitch said PMI requested that the rating agency withdraw its ratings and will no longer provide it with non-public data. "PMI has extremely limited access to the capital markets and, as a result, will largely have to rely on current capital resources to satisfy ongoing MI claims," Fitch said. Both MIs have posted large losses in the past year and their shares trade for $1 or less.

The price gap between homes that sell as REO and the rest of the market is widening, according to a new study by Lender Processing Services. Prior to 2007 the difference in prices was slim, said LPS, a mortgage software company based in Jacksonville, Fla. Using a home price index that it developed, LPS conducted a study of changes in regional home prices between 2007 and 2008 in the nation's top housing markets. "In general, markets that experienced sharp drops in home prices in 2008 also saw deeper REO discounts," said LPS senior vice president Nima Nattagh. The largest drop in prices of REO sales were found in Riverside County, Calif. In 2008 home prices fell 28% there compared to 2007. However, when REO sales are factored in, prices fell by 34%. Home prices declined by 29% during 2008 in Phoenix where analysts cite significant overbuilding. When REO sales were excluded from the analysis, though, the price decline was less severe at 19% year over year. The gap between home prices with and without REO sales was smallest in Seattle, New York and Cambridge, Mass. While the Western states and Michigan and Florida saw double-digit declines in home prices, other regions have fared much better. But further deterioration in the housing market will most likely deepen the REO discount levels in these markets, LPS said.